HTC reevaluating S3 Graphics purchase after ITC reversal

HTC is having second thoughts about its decision to purchase S3 Graphics now that the U.S. International Trade Commission has dismissed S3's patent infringement complaint against Apple.

The Taiwanese handset maker said in a statement on Wednesday that it will conduct a "holistic re-evaluation of the S3 Graphics acquisition" in light of the case dismissal, Paid Content reports. HTC also said it was "disappointed at the outcome" of the recent ITC ruling.

The ITC formally dismissed S3's complaint on Monday, overturning a July ruling that had found Apple's Mac products had infringed on the graphics firm's patents.

HTC acquired S3 earlier this year for $300 million in hopes of gaining a valuable bargaining chip in its ongoing dispute with Apple. Chief Executive Peter Chou has since worked to reassure investors that the value of the S3 Graphics purchase will exceed its high price.

S3 Graphics intends to appeal the decision. It also filed a second complaint against Apple with the ITC in September, alleging infringement of two more of its patents.

But, time is running out for HTC to strike a deal with its rival, as the ITC is scheduled to rule on Apple's case against HTC on Dec. 6. In July, an Administrative Law Judge with the commission found HTC guilty of infringing on two of Apple's patents.

Apple first sued HTC in March 2010, accusing the company of stealing its technology. According to his authorized biography, Steve Jobs was livid at the release of an HTC phone in January 2010 that appeared to infringe Apple's iPhone patents.

"I will spend my last dying breath if I need to, and I will spend every penny of Apple's $40 billion in the bank, to right this wrong," Jobs reportedly told biographer Walter Isaacson. "I'm going to destroy Android, because it's a stolen product. I'm willing to go thermonuclear war on this."

HTC spooked investors on Thursday when it slashed its revenue forecast, predicting zero growth year over year for the fourth quarter, down from original estimates of 20 percent to 30 percent growth. The company's shares fell as much as 7 percent on the news.

"This new guidance takes us by complete surprise and is at odds with recent discussions we have had with distribution channels, especially in Europe," Sanford C. Bernstein senior analyst Pierre Ferragu told Reuters.

HTC's full statement is reproduced below:

HTC is disappointed at the outcome of the recent ITC ruling that stated Apple did not infringe S3 Graphics patents. S3 Graphics will continue to appeal. HTC has made significant effort in preparing for these complicated legal proceedings, including a complete legal investigation and comprehensive report on patent and price evaluations. HTC had decided to acquire S3 Graphics based on the strong belief that evidences of patent infringement from Apple were clear and ITC ruled in its initial determination that Apple had infringed two patents from S3. In light of recent development, HTC will work closely in good faith with VIA Technologies and WTI Investment International to conduct [a] holistic re-evaluation of the S3 Graphics acquisition.

HTC had decided to acquire S3 Graphics based on the strong belief that evidences of patent infringement from Apple were clear and ITC ruled in its initial determination that Apple had infringed two patents from S3.

So HTC didn't purchase S3 because they made good products and they would enhance HTC's own products?
They only purchased based on the belief they could screw Apple?

So to sum up:
They tried to buy a legal victory because they don't have any real innovation to stand on, got called on their bluff, and are running away with their tails between their legs.

The problem for Htc is Apple has patents that were granted long before Htc even existed.

No new company can enter the smartphone market and even attempt to innovate because companies like Microsoft, Apple and IBM own patents fundamental to all operating systems. The only way is to have your own portfolio of patents and cross license which rules out most new companies. The patent system is broken and it stops innovation.